House clears path to tax reform

Allison Robbert/Bloomberg

The House Budget Committee late Thursday passed a partisan budget resolution that clears the way for nitty-gritty debate over a reconciliation package that the municipal market is monitoring closely for potential attacks on the tax exemption.

The final budget resolution passed by a party-line 21-16 vote after a 12-hour debate and marked a critical step for House Republicans working with a razor-thin majority toward the reconciliation process. The Senate is working on its own reconciliation package that would break the Trump administration's agenda into two bills and push tax reform until later in the year.

The amendments passed Thursday will weaken House Ways and Means Committee's flexibility to cover tax cuts. The original resolution gave the committee $4.5 trillion for tax cuts — most of which are expected to come as extensions of the  2017 Tax Cuts and Jobs Act — and ordered other committees to identify $2 trillion of cuts. The final resolution links the two policies, so if Republicans are unable to find $2 trillion of cuts, then Ways and Means needs to reduce its $4.5 trillion by the same amount.

The amendment also does the opposite and allows Ways and Means to take more than $4.5 trillion worth of tax cuts if spending cuts surpass $2 trillion. 

The resolution increases the debt limit by $4 trillion to avoid an impasse as the so-called X date nears this summer.

"This budget resolution provides the fiscal framework for what will be one of the most consequential pieces of legislation in modern history and the principal legislative vehicle for delivering on President Trump's America First agenda," House Budget Chairman Jodey Arrington, R-Texas, said.

The resolution may head to the House floor after lawmakers return from a 10-day break.

The reconciliation process can advance quickly once the budget resolution language is in place, said Rep. Kevin Hern, R-Okla., speaking Thursday at a tax policy event hosted by Punchbowl News.

The resolution for the TCJA was passed "in the middle of November and the policy was actually passed in December, so you can move very quickly," Hern recalled.

"It's important today to have that language come forward so we can have that debate on the record and have hearings on that," he said. The Ways and Means committee is "not just sitting around doing nothing," Hern added, saying members have been working on the tax reform for more than a year.

"We have a lot of things that you all have not reported on because you don't know about them — and that's by design," he said.

Extending the major provisions of the TCJA would cost at least $4.7 trillion, requiring Ways and Means to find revenue-raisers. Additional Trump administration priorities like eliminating taxes on tips and Social Security could raise the full price tag to $5 trillion to $11 trillion, according to the Committee for a Responsible Federal Budget.

Senate Majority Leader John Thune, R-S.D., and top Senate tax writers sent a letter to Trump saying they would only support a package that makes the TCJA permanent as opposed to temporary extensions, a goal that is not part of the House resolution and could further complicate negotiations.

The two chambers need to agree on the same budget resolution to begin to craft a reconciliation bill.